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regarded as a trade or business, legal fees stemming from a
taxpayer’s employee status are to be treated as miscellaneous
itemized deductions, subject to the 2-percent floor.6 See sec.
62(a)(1); see also Commissioner v. Banks, 543 U.S. 426, 432
(2005); McKay v. Commissioner, 102 T.C. 465, 493 (1994), vacated
on other grounds without published opinion 84 F.3d 433 (5th Cir.
1996); Test v. Commissioner, supra; Alexander v. Commissioner,
T.C. Memo. 1995-51, affd. 72 F.3d 938 (1st Cir. 1995).
It is undisputed that petitioner was an employee of MVEDC and
that the legal fees petitioner paid stemmed from that
relationship. Therefore, the legal fees of $11,920 petitioner
paid to his attorney relating to the settlement of petitioner’s
claims against MVEDC would have been deductible on Schedule A,
Itemized Deductions.
Petitioner did not file a Schedule A with his 2003 return but
instead claimed the standard deduction. Petitioner’s spouse also
filed a separate return for 2003 and claimed the standard
deduction. As a consequence, respondent contends that petitioner
6The excess unreimbursed employee and other miscellaneous
expenses deduction is claimed on Schedule A, Itemized Deductions.
The amount of the deduction equals the sum of: (1) Unreimbursed
employee expenses--job travel, union dues, job education, etc.;
(2) tax preparation fees; and (3) other expenses--investment,
safe deposit box, etc., less an amount equal to 2 percent (the 2-
percent floor) of the taxpayer’s adjusted gross income. See sec.
67(a).
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